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Court Throws Out T-Mobile's Forced Arbitration Clause

Wireless provider tried to block a class action lawsuit

By Martin H. Bosworth
ConsumerAffairs.com

January 26, 2008 

In the latest case, a class action lawsuit filed against wireless provider T-Mobile was cleared to proceed when a federal appellate court ruled that the company's contract clause forcing customer disputes to go to mandatory arbitration was unenforceable under Washington state law.

Two Washington T-Mobile customers sued the company under the state's Consumer Protection Act, citing instances of being charged for services that had been advertised as free, and T-Mobile had attempted to move the case to federal court, using the contract agreement that contained the arbitration clause.

The Ninth Circuit Court of Appeals upheld an earlier ruling that the mandatory arbitration clause was "substantively unconscionable and unenforceable" under state law.

Writing for the court, Judge Ronald Gould referred to a similar case involving Cingular/AT&T's attempt to throw out another class action lawsuit citing the "mandatory arbitration" clause.

That case was dismissed by the court, as the clause functioned to "exculpate the drafter from liability for a broad range of undefined wrongful conduct, including potentially intentional wrongful conduct, and that such exculpation clauses are substantively unconscionable."

After examining T-Mobile's arbitration clause and finding it "indistinguishable in all material respects" from the Cingular/AT&T clause, Gould wrote, the court ruled that the wireless carrier could not enforce the clause as stated.

Businesses of all types regularly insert "mandatory arbitration" clauses into contracts that mandate customers pursue private dispute resolutions rather than going to court. But studies have found that arbitration cases are tipped heavily in favor of the defendant--usually big corporations--and that the arbitrators are paid heavily by the companies who hire them, guaranteeing a ruling in their favor.

Consumers in arbitration disputes also have to pay heavy costs for time and travel, more than they would in a small claims court, and are often banned from discussing the terms of their settlements or agreements publicly.

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